Concessions Concession is one of the main interests that can be created. It is the agreement which hands over and transfers certain interest in a property to another person. It has been used for a long time in many parts of the world for transfer of interest in land and resources from one party to the other. The interest is normally not an outright sale or purchase but for a certain period of time. This is usually between the company and the state that has petroleum embedded in its land. It does not involve complete transfer of the land but it signifies the permission by the owner to the company that wants to work upon and se the land Traditional Concession This is an agreement whereby the oil company received the exclusive right to explore for petroleum and if petroleum was discovered, to produce, market and transport the oil and gas. In return, the company paid specified costs and taxes. These concessions had certain characteristics. The area was often very large. In many cases it extended over the whole land in the nation. The duration was very long, usually between forty years to seventy-five years. They were in respect of very large areas of land of the host country. In Nigeria for example, the concession granted to Shell in 1938 was in respect of the entire mainland of Nigeria. It usually had exclusive ownership of and was free to dispose of them as it deemed fit. Modern Concession Modern concession is similar to the traditional concession in many ways. It is also an arrangement whereby the oil company receives the exclusive right to explore for petroleum and if petroleum was discovered, to produce, market and transport it. The company pays specified costs and taxes to the State that has the crude oil. Under this type of concession “the company has rights over the produced petroleum and owns it as from the point of extraction.” It is now called by various names such as licence or lease, but it is still the most widely used type of agreement. The duration is normally for an initial period of twenty years. The area of coverage has also been reduced. The company is usually given rights only in respect of crude oil and sometimes natural gas. Petroleum remains at all times the property of the State in almost all agreement of this nature. Petroleum sharing contracts These are legal arrangements in which crude oil is shared by the parties in prearranged proportions. In a standard PSC the company bears all the risks of exploration, and is often in charge of the operations and management of the contract area. When oil is discovered in commercial qualities, the company is entitled to recoup its investments from the crude oil produced from the contract area. The remainder is then shared between the National Oil Company (NOC) of the oil producing country and the company in a predetermined proportion. Unlike the concession, ownership of petroleum discovered remains vested in the State or its NOC and the contractor does not acquire title to its share of the petroleum until the oil reaches a mutually agreed point. Joint Venture Agreement: A joint venture is agreement between two or more companies/parties to jointly do a business or to jointly undertake the formation of a company/ business in which the parties jointly fund and bear the risks. It is common in the oil industry to have a JVA between the host country and the international oil company. This is so as to have the two parties engage in the exploration and prospecting for oil in the country. Participation Agreements This agreement sets out the respective rights of partners to the joint venture. Such agreements vary in detail, because they were individually negotiated, but they remain the same in substance. Participation enables the host country exercise more control on the operations of its industry. It makes for more effective technology transfer, since the host country is likely to become more familiar with the practical aspects of the petroleum industry. Through participation, the host country’s objectives are potentially capable of fulfillment, although its effectiveness depends on the way it is implemented. Operating Agreement This type of agreement spells out the legal relationships between the owners of the respective leases, and lays down rules and procedures for the joint development of the area concerned, and of property jointly owned by the two parties. It gives the details of the workings and activities that the oil company is expected to do, while also stating the roles of the host country. The national oil company’s scope of work in the operation is clearly defined in this type of agreement and each party is fully aware of its responsibility under the JVA. Oil Exploration License and Lease The Petroleum Act provides in Section 2 (1) that the Minister of Petroleum may grant any of the licenses or lease created subject to the provisions of the Act. The Act further provides that an oil exploration license shall not confer any exclusive rights over the area of the license, and the grant of an oil exploration license in respect of any area shall not preclude the grant of another oil exploration license or of an oil prospecting license or oil mining lease over the same area or any part thereof. Oil Prospecting License: Oil prospecting under the Petroleum Act, includes the right to explore and carry away and dispose of petroleum won during prospecting operations subject to the fulfillment of obligations imposed upon him under the Act. An oil prospecting license (OPL) can only be granted to a company incorporated in Nigeria. The holder of an oil prospecting license has the exclusive right to explore and prospect for petroleum within the area of his license. The duration of an oil prospecting license is determined by the Minister but must not exceed five years including any periods of renewal. Oil Mining Lease Oil mining involves the exclusive right to conduct exploration and prospecting operations or otherwise treat petroleum discovered in or under the leased area. The Act provides that the term of an oil mining lease shall not exceed twenty years. This term may however be renewed in accordance with laid down procedures stipulated by the Act. The lessee of an oil mining lease shall have the exclusive right to conduct exploration and prospecting operation and to win, get, work, store, carry away, transport export or otherwise treat petroleum discovered in or under the leased area Assignment of Rights: The holder of an oil prospecting license or an oil mining lease shall not assign his license or lease or any right, power or interest therein or there under, without the prior consent of the minister. As already stated entire ownership and control of mineral oil or petroleum and natural gas in Nigeria is vested in the Federal Government. The Federal Government may grant the following rights to companies incorporated in Nigeria, an oil exploration license OEL, an oil prospecting license (OPL) and an oil-mining lease (OML). One advantage of the Act from the point of view of the oil companies is that there is no delay in land acquisition for oil operation. With both oil and land now being vested in the government, procuring the necessary licenses to drill oil and leases to enter upon land are now relatively quicker and easier. On the government side, in addition to royalty and rents from oil, the government, as land owner, now receives compensation for land hitherto paid to families and communities. For the local people, once there is an acquisition of land by the government, they are only entitled to compensation for improvements to the land. Rights, obligations, mitigation and innovations Most exploration and production activities in the oil and gas industry are carried out exclusively by multinationals under joint venture contracts whereby the Nigerian National Petroleum Corporation (NNPC), the state oil company, contributes to 55-60 percent of production contracts and claims the same ratio of total revenues. Despite the huge revenue that accrues to the nation from these resources, there is little to show for it as far as the oil producing areas are concerned. Rather they have suffered consequences of environmental pollution and other disturbing issues. S. 36 of Schedule 1 of the Petroleum Act 1969 provides for the payment of “fair” and “adequate” compensation, which refer to surface right including specified plants, crops and economic trees. A factor in the deteriorating economic condition of not just the Niger Delta is environmental pollution arising from careless and unmonitored oil production. The byproduct of gas flaring continues to destroy the ecosystems of surrounding areas, and pipelines that have been constructed through numerous farmlands have ruptured, causing damage to vast areas of agricultural land. These are responsible for the environmental problems facing the country, but mostly the Niger Delta such as the destruction of the nitrogen cycle of the soil and plants, the contamination of water, and the extinction of plankton, fish, and other aquatic organisms. Taking agriculture and fishing industry into account as the primary source of subsistence for a large portion of the Nigerian population, making up about 40 percent of the nation’s labour force, the current destruction of the ecological balance translates into depressed income and widespread poverty. Another factor is the large amount of displacement that has occurred over the course of oil exploration and production. As stated earlier, land falls under the direct control and management of the state governor, or under the local government of the rural areas. The act allows designated government officials to grant statutory rights of occupancy to any land, and this has been used to expropriate farmlands for the use of the oil companies. Since the law has been passed, a large number of families from the oil communities have lost their farmlands to claims on areas for oil production and transportation alone. Land in Nigeria represents a fundamental safety net for a great number of people who have traditionally depended on it for subsistence agriculture and various indigenous medicines. Important food crops such as cassava, pepper, garri, and cocoyam have all been subject to poor yields over the past few decades. Other crops such as yellow yam, one of the most commonly grown specie of yam in many communities, have all together disappeared from local markets, as evidence of serious pollution. Aside from crude oil, industrial wastes from exploration activities and refinery emissions, coupled with thermal pollution from gas flar]]>

Subscribe ToTheNigeriaLawyer News!